Organizational Design & Development- Chapter 2: THE ROLE OF STRATEGIC DIRECTION IN ORGANIZATION DESIGN

Organizational Goal

Is a desired state of affairs that the organization attempts to reach.
A result or end point toward which organizational
efforts are directed.

True or False:
The choice of Goals and Strategy influences how the organization should be Designed.

True:
Top executives decide the end purpose the organization will strive for and determine the Direction it will take to accomplish it.
It is this Purpose and Direction that shapes how the organization is Designed and Managed.

True or False:
The Primary Responsibility of Top Management is to determine an Organization's (GSD) Goals, Strategy, and Design, therein adapting the organization to a Changing Environment.

True

The Direction-Setting Process typically begins with

An Assessment of the Opportunities and Threats in the External Environment, including the Amount of (CUR) Change, Uncertainty, and Resource Availability.

Top managers also assess ___ ___ and ___ to define the company's distinctive competence compared with other firms in the industry.

internal strengths, weaknesses

True or False:
The Competitive Analysis of the Internal and External Environments is one of the Central Concepts in
Strategic Management

True:
The best strategies come from systematic analysis of organizational strengths and weaknesses combined with analysis of opportunities and threats in the environment.
Careful study combined with experience enable top
managers to decide on specific goals and strategies.

The Organization's Strategic Intent

This includes defining an Overall Mission and Official Goals based on the Correct Fit between External Opportunities and Internal Strengths

Organization Design reflects:

The Way goals and Strategies are implemented so that the organization's attention and resources are
consistently focused toward achieving the Mission and Goals.

Organization Design is

The Administration and Execution of the Strategic Plan

Organization Direction is implemented through

Decisions about Structural Form, including whether the organization will be Designed for a (LE) Learning or an Efficiency Orientation, also,
choices about (IC.PT.HP.C.L) Information and Control Systems, the Type of Production Technology, Human Resource Policies, Culture, and Linkages to other organizations.

The role of top management is important because managers can interpret the environment differently and develop different goals.:
Give an example.

A new CEO at Borders Group believed the book retailer was missing an opportunity by emphasizing its 'bricks and mortar stores' while paying little attention to the online world of book retailing.
CEO, quickly saw e-commerce as "a necessary component of our business." Borders ended its alliance with Amazon.com and reopened its own branded website.

Five (5) Top Management Roles in Organization-
Direction, Design, and Effectiveness.: E.I.S.O.E

1. External Environment are: O.T.U.R

1. Opportunities
2. Threats
3. Uncertainty &
4. Resource Availability

2. Internal Situations: S.W.D.L.P

1. Strengths
2. Weaknesses
3. Distinctive Competencies
4. Leadership Style &
5. Past Performance

3. Strategic Intent:

1. Define Mission i.e. Official Goals &
2. Select Operational Goals i.e. Competitive Strategies

4. Organization Design

1. Structural Form i.e. Learning vs Efficiency
2. Information & Control Systems
3. Production Technology
4. HR Policies & Incentives
5. Organizational Culture
6 Inter-organizational Linkages

Effectiveness Outcome: G.R.E.B.

1. Goal attainment
2. Resources
3. Efficiency
4. Balance Scorecard

ORGANIZATIONAL PURPOSE

May be referred to as the overall goal, or mission. Different parts of the organization establish their own goals and objectives to help meet the overall goal, mission, or purpose of the organization.

Briefcase: As an organization manager, keep these
guidelines in mind. Fill in the blanks:
1. Establish and communicate Organizational ___ and ___.
2. Communicate Official Goals to provide a statement of the Organization's Mission to ___ Constituents.

3. Communicate operational goals to provide ___ (d.g.s) direction, guidelines, and standards of performance

1. Mission, Goals.
2. External
3. Internal

Strategic Intent

Means that all the Organization's Energies and
Resources are Directed toward a Focused, Unifying, and Compelling overall Goal.

Examples of ambitious goals that demonstrate strategic intent;

" Canon's to "Beat Xerox," and Coca-Cola's "To put a
Coke within 'arm's reach' of every consumer in the world."

Strategic intent provides:

A Focus for Management Action.

Three aspects related to Strategic Intent are: M.C.C.

The Mission, Core Competence, and Competitive Advantage.

Mission:

The overall goal for an organization; the organization's
reason for existence. It describes the organization's Shared Values and Beliefs and its reason for being.

True or False:
The mission is sometimes called the Official
Goals

True:
which refers to the Business Scope and Outcomes the organization is trying to Achieve.

Official Goal Statements typically define:

Business Operations and may focus on (VMC) Values, Markets, and Customers that distinguish the Organization.

The organization's general statement of its Purpose and Philosophy.

is often written down in a Policy Manual or the Annual Report.

The Mission Statement Communicates to:

Current and prospective employees, customers, investors, suppliers, and competitors what the organization stands for and what it is trying to achieve.

A mission statement communicates Legitimacy to
Internal and External Stakeholders, who may join and be committed to the organization because___:

They identify with its Stated Purpose and Vision.

Competitive Advantage

The overall aim of strategic Intent is to help the organization achieve a Sustainable ___ ___.

Competitive Advantage refers to

what sets the organization apart from others and provides it with a Distinctive Edge for meeting Customer or Client Needs in the Marketplace.

Managers Analyze Competitors and the Internal and External Environments to find what?

Potential Competitive Openings and learn what New Capabilities the organization needs to Gain the Upper Hand against other Companies in the industry.

Core Competence

is something the organization does especially well in comparison to its competitors.

A core competence may be in the area of, for example:

Superior Research and Development, Expert Technological Know-How, Process Efficiency, or Exceptional Customer Service.
The North Face, Strategy Focuses on the company's Core Competencies of Operational Efficiency and Merchandising know-how. Because of their sourcing, distribution, and financial systems they doubled sales to $500 million and improved profit margins to a healthy 13 percent within five years .

What do Operative Goals do?

Designate the ends sought through the Actual Operating Procedures of the organization and explain what the organization is actually trying to do.

What are Operative goals?

Describe Specific Measurable Outcomes and are
often concerned with the Short Run.
These goals typically pertain to the Primary
Tasks an organization must perform.
Specific goals for each primary task provide
direction for the day-to-day decisions and activities within departments.

Typical Operative Goals include: P.R.E.M.P.I

1. Performance
2. Resource
3. Employee Development
4. Market
5. Productivity
6. Innovation and Change

Typical Operative Goals- Overall Performance:

Profitability, Growth and Output volume

Typical Operative Goals- Overall Performance:
1. Profitability

reflects the overall performance of for-profit organizations i.e. may be expressed in terms of net income, earnings per share, or return on investment.

Typical Operative Goals- Overall Performance:
2. Growth pertains to:

increases in sales or profits over time.

3. Volume pertains to:

total sales or the amount of products or services delivered.

Government and nonprofit organizations such as social service agencies or labor unions do not have goals of profitability. What do they have?

Goals that attempt to specify the Delivery of Services to Clients or Members within Specified Expense Levels

Typical Operative Goals
1. Resources Goals pertain to

The acquisition of needed material and financial resources from the environment.
They may involve obtaining financing for the construction of new plants, finding less expensive sources for raw materials, or hiring top-quality technology graduates. e.g. Resource goals for Stanford University include attracting top-notch professors and students.

Typical Operative Goals
2. Market goals relate to

The market share or market standing desired by the
organization. Market goals are largely the responsibility of marketing, sales, and
advertising departments. e.g. In the toy industry, Canada's Mega Bloks Inc. achieved its
market goal of doubling its share of the toy building block market to 30 percent.

Typical Operative Goals
3. Employee Development

Pertains to the Training, Promotion, Safety, and Growth of Employees. It includes both Managers and Workers.
Strong employee development goals are one of the characteristics common to organizations that regularly show up on Fortune magazine's list of "100 Best Companies to Work For." For example, family-owned Wegmans Food Markets

Typical Operative Goals
4. Productivity goals is concerned with

The amount of output achieved from available
resources. They typically describe the amount of resource inputs required to reach desired outputs and are thus stated in terms of "cost for a unit of production," "units produced per employee," or "resource cost per employee."

Typical Operative Goals
5. Productivity goals

Akamai's chief financial officer, Timothy Weller, sees this statistic as "the single easiest measure of ___ ___
E.g. Managers at Akamai Technologies, which sells Web content delivery services, keep a close eye
on sales per employee to see if the company is meeting ___ ___.

Innovation and Change

Pertain to Internal Flexibility and Readiness to Adapt to Unexpected Changes in the environment. They are often defined with respect to the development of specific New Services, Products, or Production
Processes. E.g. Procter & Gamble is taking a new approach to innovation that brings in ideas from outside entrepreneurs and researchers

Why are goals important?

Both Official and Operative goals are important for the organization, but they serve very different purposes.

Official goals and mission statements describe

A Value System for the organization and set an overall Purpose and Vision;

Legitimize the organization;

Operative goals

Represent the primary tasks of the organization;

Are more explicit and well defined.

Goal Type and Purpose:
Official goals, mission

Legitimacy

Goal Type and Purpose:
Operative goals:

Employee direction and motivation
Decision guidelines
Standard of performance

Another important purpose of goals is:

To act as guidelines for employee behavior
and decision making.

True or False:
Appropriate goals can act as a set of constraints on individual behavior and actions so that employees behave within boundaries that are acceptable
to the organization and larger society.

True:

Operative goals provide this standard for measurement:

The level of organizational performance, whether in terms of profits, units produced, degree of employee satisfaction, level of innovation, or number of customer complaints, needs a basis for evaluation.

A FRAMEWORK FOR SELECTING STRATEGY
AND DESIGN

To Support and Accomplish the Organization's Strategic Intent and keep people focused in the Direction determined by organizational Mission, Vision, and Operative goals.
Managers have to select specific strategy and design options that can help the organization achieve its purpose and goals within its competitive environment.

A strategy

Is a plan for interacting with the competitive environment to achieve organizational goals.

Two models for formulating strategies are:

The Porter model of- Competitive Strategies
and Miles and Snow's- Strategy typology.

Each provides a framework for ___ ___

Competitive Action.

Porter's Competitive Forces and Strategies N.S.B.S.R

1. The Threat of New Entrants.
2. The Power of Suppliers
3. The Power of Buyers
4. The Threat of Substitutes.
5. Rivalry among Existing Competitors.

The threat of new entrants to an industry:

Can create pressure for established organizations, which might need to hold down prices or increase their level of investment; e.g. when managers at Nike
learned that fast-growing athletic apparel company Under Armour planned to get into the business of selling athletic footwear, they quickly invested in reviving their company's long-dead cross-training category by designing the new SPARQ trainer.

The threat of entry in an industry depends largely on___

the amount and extent of potential barriers, such as cost. It is far more costly to enter the auto manufacturing industry, for instance, than to start a specialty coffee shop.

The Power of Suppliers.

Large, ___ ___ can charge higher prices, limit services or quality, and shift costs to their customers, keeping more of the value for themselves.
The concentration of suppliers and the availability of
substitute suppliers are significant factors in determining supplier power

The Power of Suppliers.

The sole supplier of materials or information to a company will have great power, for example. The Nielsen Company has wielded tremendous power with television networks because it has until recently been the sole source of ratings data that network executives use to make advertising and programming decisions.

The Power of Buyers

Powerful customers, the flip side of powerful suppliers,
can force down prices, demand better quality or service, and drive up costs for the supplying organization.
Wal-Mart, for example, is so powerful that it can
easily put the screws to manufacturers who supply goods for sale at its stores.

The Threat of Substitutes.

The power of alternatives and substitutes for a company's product or service may be affected by changes in cost, new technologies, social trends that will deflect buyer loyalty, and other environmental changes.
Large pharmaceutical companies are under intense pressure from generic competition as patents on numerous popular drugs have expired in recent

Rivalry among Existing Competitors.

___ among competitors is influenced by the preceding four forces, as well as by cost and product differentiation.
Porter has referred to the "advertising slugfest" when describing the scrambling and jockeying for position that occurs among fierce rivals within an industry.

Example of Rivalry

The rivalry between Coke and Pepsi is a famous example. Recently, Coke scored big with its sponsorship of the Beijing Olympics, but Pepsi's creative marketing had many Chinese consumers thinking it was an official sponsor too

In finding its competitive edge within these five forces, Porter suggests that a company can adopt one of three strategies: They are:

Differentiation, Low-cost leadership,
or Focus.

Porter's Competitive Strategies.:
The focus strategy, in which the organization concentrates on a specific market or buyer group, is further divided into focused low cost and focused
differentiation.
To use this model, managers evaluate two factors,

Competitive Advantage and Competitive Scope.

Porter's Competitive Strategies.:
With respect to advantage, managers determine whether to compete through ___ ___ or the ability to offer ___ or distinctive products and services that can command a premium price.

lower costs, unique

Porter's Competitive Strategies.:
Managers then determine whether the organization will compete on a ___ (competing in many customer segments) or a ___ (competing in a selected customer segment or group of segments). These choices determine the selection of strategies

broad scope, narrow scope

Porter's Competitive Strategies.:
Differentiation strategy

Organizations attempt to distinguish their products or services from others in the industry.
An organization may use Advertising, Distinctive Product Features, Exceptional Service, or New Technology to achieve a Product perceived as Unique. This strategy usually targets customers who
are not particularly concerned with price, so it can be quite profitable.

Porter's Competitive Strategies:
True or False:
A differentiation strategy can increase rivalry with competitors

False:
A differentiation strategy can reduce rivalry with competitors and fight off the threat of substitute products because customers are loyal to the company's brand.

Porter's Competitive Strategies.:
Successful differentiation strategies require a number of costly activities, such as:

Product research and design and extensive advertising. Companies that pursue a differentiation strategy need strong marketing abilities and creative employees who are given the time and resources to
seek innovations.

Porter's Competitive Strategies.:
Example of differentiation

Apple has never tried to compete on price and likes being perceived as an "elite" brand. Its personal computers, for example, can command significantly higher prices than other PCs because of their distinctiveness. The company has built a loyal customer base by providing innovative, stylish products and creating a prestigious image. Consider the launch of the iPhone.

Porter's Competitive Strategies.:
The low-cost leadership strategy

Tries to increase market share by keeping costs low compared to competitors.
The organization aggressively seeks efficient facilities, pursues cost reductions, and uses tight controls to produce products or services more efficiently than its competitors.

Low-cost doesn't necessarily mean low-price, but in many cases, Give example:

Low-cost leaders provide goods and services to customers at cheaper prices, e.g.
The CEO of Irish airline Ryanair said one of the company's strategy: "It's the oldest, simplest
formula: Pile 'em high and sell 'em cheap . . . We want to be the Wal-Mart of the airline business. Nobody will beat us on price. EVER."

The low-cost leadership strategy is concerned primarily with:

Stability rather than taking risks or seeking new opportunities for innovation and growth. A low cost
position means a company can achieve higher profits than competitors because of its efficiency and lower operating costs; e.g. Low-cost leaders such as Ryanair or Wal-Mart can undercut competitors' prices and still earn a reasonable profit.

True or False:
If substitute products or potential new competitors enter the picture, the low-cost producer is in a better position to prevent loss of market share.

True

The Best business strategy is to make products and services as distinctive as possible to gain an edge in the marketplace.

Disagree. Differentiation, making the company's products or services distinctive from others in the market, is One effective strategic approach. A Low-Cost
Leadership approach can be equally or even more effective depending on the organization's strengths and the nature of competition in the industry.

1. Focus Strategy

The organization concentrates on a specific regional market or buyer group. The company will try to achieve
either a low-cost advantage or a differentiation advantage within a narrowly defined market.

2. Focus Strategy: Example

E.g. Puma, the German athletic-wear manufacturer. In the mid-1990s, Puma was on the brink of bankruptcy. CEO Jochen Zeitz, then only 30 years old, revived the brand by targeting selected customer groups, especially armchair athletes, and creating stylish
shoes and clothes that are setting design trends. Puma is "going out of its way to be different," says analyst Roland Könen.

Miles and Snow's Strategy Typology (Four Strategies)

Is based on the idea that managers seek to formulate strategies that will be congruent with the external environment. Organizations strive for a fit among internal organization characteristics, strategy, and the external environment.

Miles and Snow's four strategies that can be developed are:

The Prospector, the Defender, the Analyzer, and the Reactor.

Prospector Strategy:

Is to innovate, take risks, seek out new opportunities,
and grow. This strategy is suited to a dynamic, growing environment, where creativity is more important than efficiency.

The Prospector Strategy:

Nike, which innovates in both products and internal processes, exemplifies the prospector strategy. Nike's new Air Jordan XX3, for example, is the first in a program of shoes based on designs that can be produced using recycled materials and limited amounts of toxic chemical based glues.

The Defender Strategy

Is almost the opposite of the prospector. Rather than
taking risks and seeking out new opportunities, this strategy is concerned with stability or even retrenchment. This strategy seeks to hold on to current customers, but it neither innovates nor seeks to grow.

The Defender is concerned primarily with

Internal efficiency and control to produce reliable, high-quality products for steady customers. This strategy can be successful when the organization exists in a declining industry or a stable environment

1. The Analyzer

Tries to maintain a stable business while innovating on the periphery. It seems to lie midway between the prospector and the defender.
Some products will be targeted toward stable environments in which an efficiency strategy
designed to keep current customers is used.

2. The Analyzer

Targeted toward new, more dynamic environments, where growth is possible. The analyzer attempts to balance efficient production for current product or service lines with the creative development of new product lines.

3. The Analyzer

Amazon.com strategy is to defend its core business of selling books and other physical goods over the internet, but also to build a business in digital media, including initiatives such as a digital book service, an online DVD rental business, and a digital music store to compete with Apple's iTunes.

1. Reactor

The ___ is not really a strategy at all. Rather, ___ respond to environmental threats and opportunities in an ad hoc fashion. In a ___ strategy, top management has not defined a long-range plan or given the organization an explicit mission or goal, so the organization takes whatever actions seem to meet
immediate needs. Although the ___ strategy can sometimes be successful, it can also lead to failed companies.

Design the organization to support the firm's ___

competitive strategy.

With a low-cost leadership or defender strategy, select design characteristics associated with an

Efficiency orientation.

For a differentiation or prospector strategy, on the other hand,

Innovation, and adaptation, choose characteristics that encourage learning

Use a balanced mixture of characteristics for an

Analyzer strategy.

How Strategies Affect Organization Design

Choice of strategy affects internal organization characteristics. Organization design characteristics need to support the firm's competitive approach. For example, a company wanting to grow and invent new products looks and "feels" different from a company that is focused on maintaining market share for long-established products in a stable industry

Porter's Competitive Strategies
1. Strategy: Differentiation

Organization Design:
• Learning orientation; acts in a flexible,
loosely knit way, with strong horizontal
coordination
• Strong capability in research
• Values and builds in mechanisms for
customer intimacy
• Rewards employee creativity, risk taking,
and innovation

2. Strategy: Low-Cost Leadership

Organization Design:.
• Efficiency orientation; strong central
authority; tight cost control, with
frequent, detailed control reports
• Standard operating procedures
• Highly efficient procurement and
distribution systems
• Close supervision; routine tasks;
limited employee empowerment